197. Overall maximum managerial remuneration and managerial remuneration in case of
absence or inadequacy of profits.— (1) The total managerial remuneration payable by a public
company, to its directors, including managing director and whole-time director, and its manager in respect
of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial
year computed in the manner laid down in section 198 except that the remuneration of the directors shall
not be deducted from the gross profits:
Provided that the company in general meeting may, with the approval of the Central Government,
authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company,
subject to the provisions of Schedule V:
Provided further that, except with the approval of the company in general meeting,—
(i) the remuneration payable to any one managing director; or whole-time director or manager
shall not exceed five per cent. of the net profits of the company and if there is more than one such
director remuneration shall not exceed ten per cent. of the net profits to all such directors and
manager taken together;
(ii) the remuneration payable to directors who are neither managing directors nor whole-time
directors shall not exceed,—
(A) one per cent. of the net profits of the company, if there is a managing or whole-time
director or manager;
(B) three per cent. of the net profits in any other case.
(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-section
(5).
(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of
Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company
shall not pay to its directors, including any managing or whole-time director or manager, by way of
remuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except
in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with
the previous approval of the Central Government.
(4) The remuneration payable to the directors of a company, including any managing or whole-time
director or manager, shall be determined, in accordance with and subject to the provisions of this section,
either by the articles of the company, or by a resolution or, if the articles so require, by a special
resolution, passed by the company in general meeting and the remuneration payable to a director
determined aforesaid shall be inclusive of the remuneration payable to him for the services rendered by
him in any other capacity:
Provided that any remuneration for services rendered by any such director in other capacity shall not
be so included if—
(a) the services rendered are of a professional nature; and
(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered
under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses
the requisite qualification for the practice of the profession.
(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:
Provided that the amount of such fees shall not exceed the amount as may be prescribed:
Provided further that different fees for different classes of companies and fees in respect of
independent director may be such as may be prescribed.
(6) A director or manager may be paid remuneration either by way of a monthly payment or at a
specified percentage of the net profits of the company or partly by one way and partly by the other.
(7) Notwithstanding anything contained in any other provision of this Act but subject to the
provisions of this section, an independent director shall not be entitled to any stock option and may
receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for
participation in the Board and other meetings and profit related commission as may be approved by the
members.
(8) The net profits for the purposes of this section shall be computed in the manner referred to in
section 198.
(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in
excess of the limit prescribed by this section or without the prior sanction of the Central Government,
where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in
trust for the company.
(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9)
unless permitted by the Central Government.
(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the effect of
increasing the amount thereof, whether the provision be contained in the company‘s memorandum or
articles, or in an agreement entered into by it, or in any resolution passed by the company in general
meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions
specified in that Schedule and if such conditions are not being complied, the approval of the Central
Government had been obtained.
(12) Every listed company shall disclose in the Board‘s report, the ratio of the remuneration of each
director to the median employee‘s remuneration and such other details as may be prescribed.
(13) Where any insurance is taken by a company on behalf of its managing director, whole-time
director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for
indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach
of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on
such insurance shall not be treated as part of the remuneration payable to any such personnel:
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be
treated as part of the remuneration.
(14) Subject to the provisions of this section, any director who is in receipt of any commission from
the company and who is a managing or whole-time director of the company shall not be disqualified from
receiving any remuneration or commission from any holding company or subsidiary company of such
company subject to its disclosure by the company in the Board‘s report.
(15) If any person contravenes the provisions of this section, he shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to five lakh rupees.
